Mortgage arrears – what it means and what you can do
They might sound like quite technical phrases, but they simply mean you’ve missed one or more of your property repayments.
Whether you rent or have a mortgage, it’s crucial to keep up with your property payments. If not, you could get yourself into a pretty bad financial situation. You should avoid getting into arrears at all costs!
Mortgage and rent are priority debts
Mortgage and rent arrears are classed as a priority debt – meaning they need to be paid off before other debt, such as credit cards and personal loans.
They’re a priority because of the serious consequences caused by missing your payments. For example, if you don’t pay your mortgage or secured loan on time, your home is at risk of being repossessed… and if you don’t pay your rent, you could be evicted.
I’m struggling to make my property payments!
It’s time to take action NOW! Don’t wait for your lender or landlord to contact you regarding the overdue payments – take the matter into your own hands.
How to regain control of your rent payments
Firstly, speak to your landlord and work out a repayment plan if you can’t afford to pay off your arrears straight away. It’ll require you to pay your rent each month, as well as a bit extra to make up for your missed payments. Be sure to calculate repayments you can afford, so you’re able to stick to your new plan.
Secondly, it's time to be strict with yourself and cut any unnecessary outgoings. You can use these savings to pay off your rent arrears.
Being able to effectively manage your money is super important, especially if you're on a low-income. It'll be your saviour when times get tough. For help, use an online budgeting calculator.
Firstly, speak to your lender! It’s nothing to be ashamed of – they want to hear from you if you’re struggling financially. And it’s best to do this before you’ve even missed a payment. Simply explain your situation to them and they’ll make an arrangement for you. They might even offer you a payment holiday. This will give you a break from having to pay your mortgage for a few months, which could help get your finances back on track.
Secondly, you could ask your lender to extend the length of your mortgage repayment term. This will reduce your monthly payments and make them more manageable. We recommend only doing this if you need a long-term solution, as doing so means you’ll end up paying back more overall.
And thirdly, if your situation is serious, you may be able to switch to an interest-only mortgage if you’re currently on a repayment plan. By swapping, you’ll cut your monthly payments. However, it’s important to remember that you’ll just be paying the interest, not the loan. This means at the end of the mortgage term, you’ll either have to sell your house to clear the mortgage, or you’ll have to pay off the balance with savings.
There’s also help from the government through the Support for Mortgage Interest (SMI) benefit. It helps you pay for the interest on your mortgage and is available to those who are unemployed or of retirement age. The benefit is paid at a standard interest rate of 2.61% on mortgages up to £200,000 – so if the rate you pay is higher than this, it won’t cover all the interest. This benefit will be ending in April 2018 and is being replaced by a loan instead.